Decision Theory and System Dynamics

Introduction

Accelerating economic, technological, social, and environmental change challenge managers and policy makers to learn at increasing rates, while at the same time the complexity of the systems they need to manage is growing. Digitalisation, internationalisation and sustainability create both opportunities and challenges for managers. Many of the problems these managers face now arise as unanticipated side effects of their own past decisions. All too often the decisions or policies implemented to solve important problems fail, make the problem worse, or create new problems. Effective decision making and learning in a world of growing dynamic complexity requires systems thinking, expanding the boundaries of mental models, and developing tools to understand how the structure of complex systems creates their behavior.

This course introduces students to system dynamics as a tool for analyzing and modeling complex business problems and strategies that can be related to digitalisation, internationalisation and sustainability. As such, system dynamics enables understanding the structure and dynamics of complex systems. System dynamics is also a rigorous modeling method for developing formal computer simulations of complex systems and use these simulations to design more effective policies and make better decisions. These simulation models can be used to create management flight simulators: microworlds where space and time can be compressed and slowed so decision makers can experience the long-term side effects of decisions, speed learning, develop our understanding of complex systems, and design structures and strategies for greater success (Sterman, 2000, pp. vii).

Course content

• Learning in and about complex systems
• The modeling process
• Causal loop diagramming
• Structure and behavior of dynamic systems
• Stocks and flows and their dynamics
• Dynamics of simple structures, like S-shaped growth
• Delays
• Modeling decision making and human behavior
• Supply chains and the origin of oscillations